Probe International

September 24, 2009

Internal auditors in Kenya’s Ministry of Finance have discovered losses of about 131 million shillings ($1.8 million) from what the country’s Finance Minister Uhuru Kenyatta says “appears to be fraud and corruption”  [PDF] in two World Bank-funded programs.

Up to 50 project managers and junior and senior staff have been suspended after being accused of involvement in the case, Kenyatta told reporters at a briefing in the capital, Nairobi.

The auditors say the losses are related to the Kenya Education Sector Support Programme (KESSP), a national education program to improve the quality of teaching and enroll students and the Western Kenya Community Driven Development and Flood Mitigation Project (WKCDD), a project to boost incomes in Western Kenya. The two programs amount to $166 million in financing.

The announcement of alleged fraud is a result of the Kenyan Internal Audit Department’s (IAD) first-ever fiduciary review of all World Bank-financed projects in Kenya.

According to Xinhua [PDF] , the review was started earlier this year. Of the 25 projects and trusts that have been assessed—five were found to have material concerns and have been selected for forensic review. Serious incidents of fraud and corruption were found in two projects, the KESSP and the WKCDD.

In response to the allegations of fraud, the World Bank says it has suspended disbursements to these two projects. According to the Bank, the suspension will remain in force until investigations of the KESSP and the WKCDD are completed.

The Bank also said it will continue working closely with the Kenyan government to strengthen oversight. The entire Bank-financed portfolio in Kenya includes 16 national and five regional projects.

Yet, corruption in Kenya’s education sector is likely not an isolated incident, as the country currently sits 147 out of 180 nations on Transparency International’s 2008 corruption perception index.

Patricia Adams, Executive Director of the aid watchdog, Probe International, says that foreign aid inevitably creates corruption with millions of dollars being transferred to governments without public oversight and accountability to taxpayers. “Foreign aid gives governments freedom from their own public and begats public sector corruption,” she says, adding that “the only solution is to phase state-to-state foreign aid out and allow citizens to regain control over their governments.”

Dambisa Moyo, in her blockbuster book, Dead Aid: Why Aid Is Not Working And How There Is a Better Way For Africa also argues that foreign aid should be phased out, suggesting a tentative time frame of five years.